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LB City Council takes one small step toward paying down unfunded liabilities

CJ Dablo
Staff Writer

It took some haggling and a little appeal to conscience from 7th District Councilmember James Johnson when he successfully convinced the entire Long Beach City Council on June 11 to set aside some money– about $322,500– toward the City’s “unfunded liabilities.” Johnson asked for twice that amount, but in the spirit of compromise, he and the other council members settled on that figure for now.
The City expects to receive about $6.45 million in one-time money that includes more than $4.4 million in revenue from what has been dubbed the “Triple Flip.” According to Dennis Strachota, who serves as the budget manager for Long Beach, this amount is a refund from Los Angeles County for administrative overcharges associated with distributing property-tax revenue to Long Beach. The remaining amount of $2.05 million comes from the proceeds of the sale of City Hall East, a municipal building located on Long Beach Boulevard that was for a while used by the police department.
The one-time flush of cash in the coffers represents some additional happy news for the City Council. It’s a fraction of the $56.8 million that the City of Long Beach expects to see in one-time revenues from various sources for the 2014 fiscal year. The Council on Tuesday limited its discussion to determine how to allocate the $6.45 million.
Prior to Tuesday’s meeting, the City’s Budget Oversight Committee had recommended that the Council divide the $6.45 million equally among all nine districts to use on infrastructure projects that include street and sidewalk repairs and other maintenance projects from the Parks, Recreation and Marine Department. Third District Councilmember Gary DeLong, who serves as the committee’s chair, submitted the recommendation to the Council. However, Johnson advocated for his own substitute motion that pushed to at least address, in a small way, the City’s unfunded liabilities. These liabilities were not defined at Tuesday’s meeting, however the budget manager explained in an email that these unfunded liabilities are “costs for services that have been already received but not fully paid for.”
Strachota said that when the term is applied to employee benefits, it would represent the unfunded cost to pay for benefits that employees will accrue.
“Unfunded liabilities can result from any number of factors,” the budget manager wrote, “including underfunding of present and future liabilities, benefit increases that are not properly funded, and unrealistic actuarial assumptions, such as higher than normal earnings from investment of benefit assets. The City estimated in January of this year that its current unfunded liability for workers compensation, sick leave paid to retirees, retiree health care subsidy and pension benefits was $1.1 billion. Unfunded liabilities are not uncommon nor a bad practice as long as the entity adheres to a plan to pay it off over time, much like a homeowner would pay off his/her mortgage over 30 years.”
Johnson initially asked to set aside 10 percent of the amount for the Council districts to pay toward those unfunded liabilities. Johnson recommended that the other 90 percent of the $6.45 million should still be divided among the districts.
“Ninety percent of the money is most of the money,” Johnson said. “Let’s set aside just a little bit to show people we’re serious about what we’ve talked about for the last three years.”
Johnson explained that the unfunded liabilities are about the costs for services today that the City has been putting off for the future. He specifically named sick leave as one of the liabilities that fall into the category of unfunded. The councilmember reminded the Council that these liabilities have been discussed many times before.
“I think the right thing to do is to step up and say, ‘We are going to pay for those services. We’re not going to push them on to our kids or our grandkids,’ Johnson said, adding that the Council has said in the past that it will commit to paying down the bill for unfunded liabilities in the future.
“Well, the future is now,” Johnson said. “And I think it really is the right time to finally step up and say we’re going to do the right thing and take some of the money, at least a little bit of it, and pay these unfunded liabilities.”
Johnson added that he was told about the advantage of paying down the unfunded liabilities sooner rather than later and how paying $2 million a year could save $24 million in the future.
Mayor Bob Foster praised Johnson’s recommendation, adding that this current Council had struggled over the last five or six years with the decisions and problems made by previous councils. He said that some of these liabilities could have been avoided if previous councils had been more mindful of the costs they were imposing on the future.
“We’ve all talked about unfunded liabilities,” Foster said, “and the truth is, immediately needs always win out– or usually win out– over long-term obligations and long-term issues…And for this council to have tens of millions of dollars…to spend on infrastructure is a good thing. But not to spend any of it on unfunded obligations is simply wrong.”
At first, DeLong substituted another motion that would essentially keep the full amount of more than $6 million divided equally among the districts but it would also include a request that the staff return to the Council with a recommendation on future one-time revenues to pay toward the unfunded liabilities. Toward the end of the discussion, DeLong agreed to a compromise offered by Johnson. The seventh-district councilmember proposed to DeLong that the amount be changed to five percent. He also recommended to revisit in the future the amount staff recommends to pay toward unfunded liabilities. The Council eventually unanimously agreed to this change.
DeLong said later that night that he agreed with Johnson in principle. He was primarily concerned about nailing down the correct amount to set aside for the unfunded liabilities.
Before she voted in favor of Johnson’s revisions to the motion, 5th District Councilmember Gerrie Schipske explained why it was important to spend the money on the infrastructure projects soon.
“The issue is not to tell the voters out there that…we’re hurrying up to spend money,” Schipske said, explaining that existing contracts with infrastructure companies were negotiated at very good rates. She said it wouldn’t be prudent to sit on money and that it would be better to spend the money in the time in which contracts were negotiated. She added that “we have an opportunity to really capitalize on some very, very good contracts out there.”
Eighth District Councilmember Al Austin recognized that, overall, the Council’s debate on how much to pay off future bills was a very positive sign for the City.
“I want to say this is a good discussion and a…[good] problem to have,” he said, summarizing how the Council is putting extra money into the infrastructure and looking at how to pay down the unfunded liabilities.
Back in April, the Council had already agreed to allocate an additional $5.4 million of the one-time funds toward infrastructure projects, according to a report by the city manager. Tuesday’s decision to add over $6 million toward infrastructure projects brings the total to more than $11.5 million available to the nine council districts. The Council’s actions leave about $45 million in available one-time funds. The 2014 budget discussions scheduled for August will include the recommendations on how to allocate the one-time revenue.